Very few venture-backed startups move from their original location to a new country, but those that do benefit financially, according to new research.
Startups that moved internationally raised an average of $60 million, compared with $20 million raised by stationary companies, and they averaged 17% more investors. Their chances of a successful exit - launching an initial public offering, undergoing a merger or being acquired by another company, all of which allow their founders and investors to cash in - were 67% higher.
Plus, startups that migrated reached billion-dollar valuations at a rate 3.5 times higher than those that didn't. And, among all billion-dollar "unicorns" in the study, those that moved internationally had a median valuation 40% higher.
"Despite the significant challenges and low observed frequency of international relocation, startups that moved internationally reap substantial benefits," said Yuan Shi, an author of the study and assistant professor of management and organizations in the Peter and Stephanie Nolan School of Hotel Administration at the Cornell SC Johnson College of Business.
Shi and his co-authors discovered these patterns by building and analyzing a sample of 75,000 venture-backed startups spanning 20 years. The research published on Feb. 24 in the Strategic Management Journal.
Previous work suggested that companies relocate in search of employees or customers. But that's not what Shi and his colleagues found.
"We find that these performance advantages are explained by startups moving closer to their existing investors located in another country and tapping into their networks and resources," Shi said.
Companies tended to move to the home countries of their foreign investors or where their domestic investors had contacts. In both cases, startups benefited from their investors' social capital, which led to financial capital.
"We also find that there is a window for moving strategically: The likelihood of moving peaks when the company is around three to five years old, and those moving within the first five years since the founding reap more benefits," he said.
The research revealed other patterns as well.
Shi said that many people assume companies migrate to the United States and stay. While the United States was the most popular destination for startups, he said, it also saw the highest number of companies leaving for other countries. The United Kingdom and Canada also experienced a lot of migration in and out.
Some countries are much more likely to either see startups move or stay put. "In our data, the percentage of Israeli startups that migrate abroad is 14.2% - more than 30 times of the migration rate in China, where only 0.41% of the start-ups moved abroad," Shi said.
Among companies that moved to the United States, fewer than 40% chose Silicon Valley.
"Silicon Valley, while remaining important, is no longer the gravity center," Shi said. "In reality, there is a variety of migration paths and destination choices, reflecting geographic dispersion rather than concentration through migration."
Most startups in the study did not move abroad, suggesting that moving is often difficult or unattainable.
"As with most things in entrepreneurial strategy, there is no one-size-fits-all solution," Shi said. "Startups should carefully weigh the decision to relocate, considering whether such a move could enhance capital access and garner support from existing investors at the destination."
Alison Fromme is a writer for the Cornell SC Johnson College of Business.
